LIC & LIT Leveraging to buy shares

Hi guys,

Does anyone suggest leveraging to buy shares? I got this idea because we have a significant amount invested in LICs, slowly compounding over time. The plan is one day to use equity from our IPs to borrow and buy shares but not possible yet.

Any other way to do it? I've heard of margin loans, and how risky they are but just wanted to here more from resident gurus here.

Thanks

 

We don't, considered it, but are happy to DCA over time without leverage.

 

Thanks mate. Would you mind sharing why you decided not to it? Especially if it can speed up one's wealth creation, in a safe way.

 

Because it will quickly go to custard if things do not go your way.

 

Check out the NAB equity builder post on here, it seems to be the most popular way to leverage in to shares

 

The thing to keep in mind with shares is they're already typically leveraged internally, not the LIC/LIT itself but the portfolio companies.

Personally I use a small line of credit to buy individual stocks but pay the line of credit down over time.

 

Go back to the old site before this one and look for the posts around 2008-GFC BBQ PLATE TIME-2009 and search for margin calls lending ect then read as much as you can as there was no you-can-be-rich -quick--- have- i -got -a -deal -for-you till the sky starting falling and they blow up and drop 65 plus % and the margins calls came very quickly 24 hours to fix it up or they are auctioned off and there is ''SFA''you can do as it's in the margin lending contract that most never read if you can't pay the margin ..imho..

 

I know someone who was in financial distress during the GFC whose portfolio had margin call by the bank. He had to borrow fund from relatives to cover for the shortfalls. So if you have capacity to have spare funds in the next crisis then you might want to consider, else not worth the stress to have margin loans.

 

I would certainly leverage at 20% plus downturn in market, but right now the market does not tempt me in the least as DCA would be just as effective.

 

I leverage ~33% of my current annual purchases. I’m in year 3 of 4 of my plan to do this. After that dividend income will equal roughly that amount so will stop leveraging. Total borrowings will also be roughly where I’m comfortable with them as well. I DCA an annual loan split and purchase in off months where I don’t have enough funds from the salary to buy from free cash. I know that’s not optimal but that’s what I’m comfortable doing and couldn’t care less about the alll up front vs dca debate.

I use investment loans from equity in the PPOR. Wouldn’t touch a margin loan. I know NAB equity builder is popular but interest rate is a bit high for my liking although haven’t looked lately. Also have a much larger undrawn balance to utilise if we had a major event eg. GFC. I did this last time just with a much smaller balance. Wish I had have taken on more!

 

I would steer clear of margin loans. Too risky IMO. In the past I have taken out loans using residential property as security for "investment" purposes. With one loan I bought a house. With another, I finished a build. I could have used the whole lot to buy an index fund. It's low risk in a way because if the price of the index fund dropped by 50% it doesn't really affect the loan.

 

As I now steer well clear of debt, particularly in respect of share purchases, I haven't bothered to look at the ins and outs of the NAB Equity Builder - there is a thread on it by the way.

Only question I would have is what happens with negative equity assuming it is possible with the product? I assume one answer could be "We're all stuffed in that case."

 

Margin loan, you risk margin call and if you cant come up with the cash in 24 hours
they offload your stock at whatever the market price can take, they dump on market at market price no limit and during a crash it lot of seller and no buyer so they off load at rock bottom price.

Don't be complacent, the bull market is in full swing and most pull back is small
but once the crash takes whole it can be a scary place

Not sure if you been though any crash, I was in the market during GFC so I know all about it.

the crash will come back it is not if, but when

The current market build up seem to be around LIC and ETF money, this will setup the stage for next crash, previously it CDO money, before that it was .com money
and before that it was corporate debt

the theme is different each time but the ending is always the same, markets always find new ways and products to bring people into the market.

If you want to leverage use your properties equity or some sort of offset that way you don't face margin call

what seem safe maybe not that safe once the money disappeared and fear takes hold.

 

I’ve used a small portion of a LOC in an investment property to leverage an investment. But I am treating it as a loan to myself given the interest on the loan is so much less than the growth from the shares (deductible 4% vs 25% last year).

I have the cash on standby to immediately pay out the amount I borrowed from myself if the situation changes materially.

I certainly wouldn’t leverage via a margin loan in today’s frothy market.

 

I don’t use leverage anymore now retired. When I did whilst there was employment income coming into the household it was only ever LOCs against property (no margin loans) and importantly only during very gloomy periods in the sharemarket. Even if I was prepared to use leverage again it certainly wouldn’t be now. Personal view only of course.

 

We use LOCs for the household emergency fund and dry powder only. It’s a nice safety net to have. When the market hits the fan, we’ll pin the ears back and invest some of the LOC. Bye bye safety net? Gulp. At least that’s the plan.

 

I have the PPOR also sitting there offset as a LOC of sorts as well. Like most on here it’s there for when a opportunity arises and there is no spare cash laying around. Used it just this week. A property trust opened up and I couldn’t resist. So drew out a couple of hundred K. But at this stage I have never done it with the intention of keeping it drawn. Will have it paid back down in the next few months.

Would I use this method for a longer period of holding debt? Yeah maybe if the buying opportunities persist in a down market and money coming through is better invested than paying down the debt at that particular time.

Margin lending. No chance I would touch let alone with where the market is at right now.

 

I certainly used a margin loan during the GFC, the effects of which is still with us a such events have a looooong tail, but kept a tight control on the amount of debt.

Even so, given my personality, I was sweating bricks. My preference was to keep debt at around 255 so when it was into the mid-30% mark I was not a happy chappy. This despite still having access to some $800k of drawdown and the markets, when already at its nadir, being able to fall another 60% or thereabouts before I would have been in margin call.

It was not a pleasant time for me although it was also a good time in many respects with being able to purchase sound, profitable companies at throw away prices. No longer have a margin loan as the stress was too much for me.

So if you're up for speculating and wish to increase the odds with a possibility of losing the shirt off your back then go for it.

If you keep a very, very stringent control of the level of debt which could require an active management approach you will be OK I think but it isn't something I consider a cautious person should do.

 

Wouldn’t have thought $225 in debt was much to sweat about.